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IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION

UNITED STATES OF AMERICA,

Plaintiff,

v.

NORTHWEST AIRLINES CORPORATION
and
CONTINENTAL AIRLINES, INC.,

Defendants.

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Civil Action No.: 98-74611

AMENDED COMPLAINT

The United States of America, plaintiff, acting under the direction of the Attorney
General, brings this civil action to obtain equitable and other relief, including an order directing
defendant Northwest Airlines Corporation ("Northwest") to divest the majority voting interest it
has acquired in its competitor, defendant Continental Airlines, Inc. ("Continental"), and
adjudicating the agreements pursuant to which Northwest acquired that voting interest to be
unlawful under the antitrust laws.

Plaintiff filed its complaint in this action on October 23, 1998, at which time Northwest
had not yet acquired a voting interest in Continental. Subsequent to the filing of the complaint,
Northwest modified the terms of the final agreements relating to the acquisition -- purportedly to
"obviate" the harm to competition alleged by plaintiff in its complaint -- and proceeded to
acquire a majority voting interest in Continental. The modifications do not remedy the
anticompetitive effects of the acquisition, and plaintiff therefore files this Amended Complaint,
alleging as follows:

Northwest is the fourth largest airline in the United States, and Continental is the
fifth largest. Both are financially sound, profitable airlines.

Northwest and Continental compete on price and service in thousands of routes
throughout the United States. They compete for passengers by offering, among other things,
promotional fares for leisure travel, frequent flyer rewards, passenger upgrades, airport and in-flight amenities, and volume discounts to businesses and other organizations. They compete
against each other in additional areas as well, such as on-time performance, ticketing procedures,
schedules, and customer service.

Northwest and Continental are each other's most significant competitor for airline
passenger service on seven densely traveled routes between cities where they operate their hubs -- Detroit, Memphis, and Minneapolis for Northwest; and Cleveland, Houston, and Newark for
Continental. Over 3.6 million passengers travel these seven "hub-to-hub" routes each year,
generating nearly $375 million in passenger revenues. Northwest and Continental are also direct
competitors for airline travel between thousands of other cities, and are each other's most
important competitor in a significant number of markets they serve on a connecting basis.

Northwest has acquired voting control over Continental, as well as a share in
Continental's profits. The acquisition diminishes substantially both Northwest's and
Continental's incentives to compete against each other on the seven existing hub-to-hub routes, as
well as on other routes. Further, it will deter Continental from offering new service in
competition with Northwest, such as expansion by Continental of its Cleveland hub.

Thus, as a result of Northwest's acquisition of voting control of Continental,
consumers likely will pay higher prices and receive lower quality service for scheduled airline
passenger service in the markets dominated by Northwest and Continental, and lose the benefit of
new, competitive entry by Continental against Northwest.

I.

JURISDICTION AND VENUE

This action is instituted pursuant to Section 15 of the Clayton Act, as amended, 15
U.S.C. § 25, and Section 4 of the Sherman Act, 15 U.S.C. § 4, to prevent and restrain violations
of Section 7 of the Clayton Act, as amended, 15 U.S.C. § 18, and Section 1 of the Sherman Act,
15 U.S.C. § 1.

A substantial portion of each defendant's revenues is derived from the sale and
provision of scheduled airline passenger service between different states. The defendants are
engaged in interstate commerce and in activities that substantially affect interstate commerce.
The Court has jurisdiction over this action and over the defendants pursuant to Section 12 of the
Clayton Act, 15 U.S.C. § 22, and 28 U.S.C. §§ 1331 and 1337.

Venue is proper in this district with respect to the defendants under 15 U.S.C. §
22 and 28 U.S.C. § 1391(c), in that each of them is a corporation that transacts business and is
found in the Eastern District of Michigan.

II.

DEFENDANTS

Defendant Northwest is a corporation organized and existing under the laws of
Delaware, with its principal offices in St. Paul, Minnesota. Northwest is the fourth largest airline
in the United States, reporting total revenues of $10.2 billion in 1997.

Defendant Continental is a corporation organized and existing under the laws of
Delaware, with its principal offices in Houston, Texas. Continental is the fifth largest passenger
airline in the United States, with total revenues of $7.1 billion in 1997.

III.

THE ACQUISITION AND RELATED AGREEMENTS

On January 25, 1998, Northwest entered into an agreement with Air Partners, L.P.
("Air Partners") and certain of its affiliates for the purpose of acquiring over fifty percent of the
voting power over Continental (the "Investment Agreement"). On March 2, 1998, Northwest
entered into an agreement with Barlow Investors III, LLC to purchase approximately 5 percent of
the voting power over Continental (the "Barlow Purchase Agreement") to ensure Northwest
would own over 50 percent of the fully diluted voting power over Continental.

Northwest and Air Partners amended the Investment Agreement on March 2,
1998, April 24, 1998 and November 20, 1998. Pursuant to the November 20, 1998 amendment,
the percentage of voting power Northwest was to acquire from Air Partners was reduced to about
46 percent. Notwithstanding the November 20, 1998 amendment to the Investment Agreement,
the Barlow Purchase Agreement ensured that Northwest would own more than 50 percent of the
fully diluted voting power over Continental. Northwest consummated the Investment Agreement
and the Barlow Purchase Agreement on November 20, 1998.

Under both the Investment Agreement and the Barlow Purchase Agreement,
Northwest bargained for and obtained Continental Class A Shares, which carry super-voting
rights.

As Class A stock, the shares purchased by Northwest from Air Partners and
Barlow represent about 14 percent and 1 percent, respectively, of the total outstanding equity of
Continental, but carry 46 percent and 5 percent, respectively, of the voting power over
Continental.

Between entering the Investment Agreement on January 25, 1998, and the closing
of the Investment and Barlow Purchase Agreements on November 20, 1998, Northwest,
Continental and Air Partners entered into various agreements and adopted various plans that
purport to govern how Northwest will exercise its voting control over Continental during the
next ten years. These agreements and plans include the Governance Agreement (and its
amendments), the Supplemental Agreement, the Voting Trust Agreement, and a shareholders'
rights agreement (hereinafter collectively referred to as the "Governance Agreements").

Notwithstanding the Governance Agreements, Northwest now owns, and will
continue to own, voting control of Continental. The Governance Agreements allow Northwest to
retain at all times an ability to influence Continental's management decisions -- such as through
discussions with Continental directors, officers and employees, comments about Continental's
performance or management, or merely the ownership of Continental stock -- and eventually to
exercise full control over Continental.

The Governance Agreements do not divest Northwest of ownership of its
Continental stock. Rather, they merely impose certain restrictions on Northwest's exercise of its
voting control during the first six years of its ownership of Continental and different, less
restrictive, limitations on that exercise of voting control during years seven through ten.
Northwest and Continental can agree privately at any time to eliminate any or all of these
restrictions; in any event, all contractual limitations on Northwest's exercise of control over
Continental expire no later than the tenth anniversary of the acquisition.

Under the Governance Agreements, Northwest retains its ownership of over 50
percent of the voting power over Continental and significant rights in and influence over
Continental during the first six years of its ownership of Continental, including interalia:

Northwest is free to direct the voting power of all its stock on key
decisions that affect the future competitiveness of Continental, including
major stock issuances, mergers, reorganizations, share exchanges,
consolidations, or business combinations of Continental, as well as the
sale of all or substantially all of Continental assets to any other company;

No other shareholder can acquire voting control of Continental without the
acquiescence of Northwest;

In contested elections for the board of directors of Continental, Northwest
can direct the vote of its controlling shares in support of the incumbent
board's recommendations;

In all elections for the board of directors of Continental, Northwest can
register a public vote of no confidence in Continental management by
directing its vote against certain directors, including Continental managers
seeking election or re-election to the board;

In addition to the approximately 51 percent of the voting power of
Continental it owns, Northwest has the right to direct the vote of certain
additional shares owned by 1998 CAI Partners, L.P. ("CAIP"). The CAIP
shares represent approximately 5 percent of the voting power over
Continental. The CAIP shares must be voted as directed by Northwest on
key matters such as mergers and changes to Continental's by-laws.
Northwest also can direct that the CAIP shares be voted as recommended
by Continental's board in the election of directors, if that is how
Northwest chooses to vote its own shares.

In addition to the rights that it retains during the first six years of its ownership of
voting control over Continental, Northwest obtains even greater rights and influence under the
Governance Agreements during years seven through ten of its ownership:

Northwest can vote 20 percent of the voting power of Continental on any
issue presented to shareholders, including executive compensation;

Northwest can nominate, solicit support for, and vote for its own
representatives to serve on Continental's board of directors.

When the Governance Agreements expire, Northwest can fully exercise its voting
control over Continental.

As a result of the Investment Agreement, the former owners of Air Partners hold
voting shares of Northwest. The Investment Agreement grants these former Air Partners owners,
through Coulco, Inc., the right to designate one individual to sit on the board of Northwest.
Coulco is owned by James Coulter who, together with David Bonderman, controlled the general
partner in Air Partners. The Investment Agreement requires that the Coulco designee be
acceptable to Northwest, and the agreement identifies James Coulter and William S. Price as
acceptable designees.

The Investment Agreement is likely to create interlocking directors on the boards
of directors of Northwest and Continental. William S. Price currently sits on the Continental
board, and if he is elected to the Northwest board, the two airlines will have a common director.
In addition to Price, three other individuals formerly affiliated with Air Partners currently sit on
the Continental board: David Bonderman, Thomas Barrack, and Donald Sturm. Former Air
Partners owners retain through CAIP about 5 percent of the voting power of Continental. If
Coulter, Price, or any other person formerly affiliated with Air Partners is designated to the
Northwest board, the former Air Partners owners will have representatives on the boards of both
Northwest and Continental.

Northwest and Continental also have entered into an alliance agreement (the
"Alliance Agreement"), which provides for system-wide joint marketing of the two carriers'
services. Consummation of the Alliance Agreement is not contingent upon consummation of the
Investment Agreement. Although such alliance agreements between airlines have become
common in recent years, it is uncommon for such alliances to be accompanied by substantial
equity ownership. Few, if any, have involved a majority interest. Both Northwest and
Continental have alliances with other domestic and foreign carriers, but none involves voting
control by one partner of the other.

IV.

THE RELEVANT MARKETS

For the vast majority of passengers who wish to travel between various
origin and destination ("O&D") airports or cities in the United
States, there is no other mode of transportation they would substitute
for scheduled airline passenger service in response to a significant
fare increase for scheduled airline passenger service. Scheduled airline
passenger service, therefore, constitutes a line of commerce and a
relevant product market within the meaning of Section 7 of the Clayton
Act, and within the meaning of Section 1 of the Sherman Act.

Few passengers currently flying nonstop between specific O&D airports or cities
in the United States would substitute connecting service (i.e., flights with one or more stops en
route) for nonstop service in response to a significant fare increase for nonstop scheduled airline
passenger service. Nonstop scheduled airline passenger service, therefore, constitutes a line of
commerce and a relevant product market within the meaning of Section 7 of the Clayton Act, and
within the meaning of Section 1 of the Sherman Act.

With respect to both scheduled airline passenger service and nonstop scheduled
airline passenger service, few passengers who wish to fly between specific O&D airports or cities
in the United States would switch to flights between other airports or cities in response to a
significant fare increase. Specific O&D airports or cities ("city pairs"), therefore, constitute a
section of the country and a relevant geographic market with the meaning of Section 7 of the
Clayton Act, and within the meaning of Section 1 of the Sherman Act.

V.

CONCENTRATION AND ENTRY

Northwest and Continental are among the ten largest airlines in the world. Within
the United States, Northwest and Continental compete for passengers in thousands of city-pair
markets.

Under the "hub and spoke" system, an airline concentrates passengers from many
points at the "hub" location and then provides nonstop service from the hub airport to a large
number of destinations (the "spokes"). The hub and spoke system allows a carrier to serve more
city pairs with more frequencies than would be profitable without the use of a hub.

In seven hub-to-hub city pair markets, Northwest and Continental together
dominate the market for nonstop service and for all scheduled airline passenger service. These
markets are Detroit-Cleveland, Detroit-New York (including Newark), Detroit-Houston,
Cleveland-Minneapolis, Minneapolis-New York (including Newark), Houston-Minneapolis, and
Houston-Memphis. Northwest and Continental's market shares for nonstop flights in each of the
seven markets are:

Northwest/Continental Hub-to-Hub Nonstop Shares

Route

NW Share of Nonstop
Flights

CO Share of Nonstop
Flights

Combined NW & CO Share
of Nonstop Flights

Detroit-Cleveland

52%

41%

93%

Detroit-New York

69%

14%

83%

Detroit-Houston

36%

64%

100%

Cleveland-Minneapolis

53%

47%

100%

Minneapolis-New York

80%

20%

100%

Houston-Minneapolis

42%

58%

100%

Houston-Memphis

39%

61%

100%

In two other hub-to-hub routes, Memphis-Newark and Cleveland-Memphis,
Northwest currently has a nonstop monopoly. As the only airline with hubs in Newark and
Cleveland, Continental is the most likely potential entrant to challenge Northwest's nonstop
monopoly. After plaintiff's complaint was filed, Continental announced it would begin nonstop
service on the Memphis-Newark route beginning in February 1999.

In total, nearly four million passengers travel in these nine hub-to-hub city pairs
annually, generating revenues of nearly $400 million per year.

Effective new entry for the provision of nonstop service in the hub-to-hub markets
is unlikely by any carrier without a hub at one of the endpoints of the city pair. A hub carrier,
such as Northwest or Continental, has significant cost advantages over a non-hub carrier
attempting to offer service originating at the hub airport. Building a competing hub in the same
city would require considerable time and investment, and is not likely to occur in response to fare
increases in the hub-to-hub markets at issue here.

Other factors impede new entry, including difficulty in obtaining access to gate
facilities; the effects of travel agent incentive programs offered by dominant incumbents;
frequent flyer programs; and the risk of aggressive responses to new entry by the dominant
incumbent carrier serving a particular market.

In addition to the hub-to-hub routes where Northwest and Continental share a
virtual duopoly, Northwest and Continental have a large share of the passengers traveling on
connecting flights in numerous city pair markets. Because of the light traffic on these routes and
the short flights to the Northwest or Continental hubs, carriers with more distant hubs are
unlikely to initiate or expand competitive service to these destinations through their own hubs in
response to significant fare increases.

VI.

ANTICOMPETITIVE EFFECTS

Northwest's ownership of a controlling interest in Continental will reduce
Continental's incentive to compete aggressively against Northwest. Furthermore, Northwest's
more than fourteen percent equity stake in Continental's profits, plus its ability to merge in the
future with Continental, will reduce Northwest's incentive to compete aggressively against
Continental.

Northwest's ownership of a controlling interest in Continental will diminish
actual competition in seven hub-to-hub markets and numerous other markets that already are
concentrated. It also will diminish the potential for nonstop competition for Memphis-Cleveland
and Memphis-Newark, as well as potential competition in other markets for which Northwest
and Continental are among the few likely future providers of scheduled airline passenger service.
As a result, fares likely will increase and service likely will decrease in these city pairs.

Northwest's ownership of a controlling interest in Continental also will reduce the
likelihood that Continental will initiate nonstop service from its hubs, such as Cleveland, to cities
already served by Northwest through its hubs, such as Detroit.

The Governance Agreements do not prevent the harm likely to result from
Northwest's ownership of a controlling interest in Continental. First, no privately negotiated
agreement can alter the fact that Northwest retains ownership of its Continental stock, and
Continental will not compete vigorously with its owner during the terms of the Governance
Agreements. Second, even under the Governance Agreements, Northwest (a) may engage in
"discussions with directors, officers and employees" of Continental; (b) retains direct control
over key Continental strategic decisions at all times; and (c) retains significant influence over
Continental's board of directors and management.

Northwest's ability to exercise the direct control attendant to its ownership
interests increases in years seven through ten following the acquisition, even if the Governance
Agreements remain in place. Those agreements may expire earlier by their own terms and, like
all agreements between two parties, the Governance Agreements can be amended or revoked at
any time by the parties -- Continental and its competitor and new owner, Northwest.

VII.

VIOLATIONS ALLEGED

The effect of Northwest's ownership of voting power over Continental may be
substantially to lessen competition in interstate trade and commerce in violation of Section 7 of
the Clayton Act, and to unreasonably restrain trade in violation of Section 1 of the Sherman Act
in the following ways, among others:

Actual and potential competition between Northwest and Continental for
nonstop scheduled airline passenger service in the hub-to-hub markets will
be reduced or eliminated;

Actual and potential competition between Northwest and Continental for
scheduled airline passenger service in city-pair markets where Northwest
and Continental are dominant providers of connecting service will be
reduced or eliminated;

Competition generally in numerous city-pair markets for scheduled airline
passenger service may be lessened substantially;

Coordinated pricing activity between providers of scheduled airline
passenger service likely will be facilitated; and

Prices for scheduled airline passenger service in numerous concentrated
city-pair markets in the United States are likely to increase.

IX.

REQUEST FOR RELIEF

WHEREFORE, Plaintiff prays:

That a permanent injunction be issued preventing and restraining defendant
Northwest and all persons acting on its behalf from owning or holding voting stock in
Continental, or any of Continental's affiliates or subsidiaries, and directing that Northwest divest
promptly all voting stock in Continental on such terms and conditions as may be agreed to by
plaintiff and the Court;

That the Investment Agreement between Northwest and Air Partners and the
Barlow Purchase Agreement between Northwest and Barlow be adjudged to be in violation of
Section 7 of the Clayton Act, 15 U.S.C. § 18, and Section 1 of the Sherman Act, 15 U.S.C. § 1;

That plaintiff have such other and further relief as the nature of this case may
require and as is just and proper, including modifications to the Governance Agreements between
Northwest, Continental and Air Partners as appropriate; and